Photovoltaic Grid Parity

By Bill Sweet

Posted 6 Nov 2009 | 5:00 GMT

In the world of solar energy, "grid parity" generally refers to the point and time when photovoltaic electricity—whether centrally generated or distributed—will be competitive with other sources of electricity. A recent report done by researchers at the Lawrence Berkeley National Laboratory finds that the installed cost of photovoltaic systems declined by more than 30 percent from 1998 to 2008, from $10.80 per watt to $7.50/W. That may sound like very encouraging news but in fact is not, however you look at it.

According to one eye-catching allegation, there's a kind of Moore's law in photovoltaics, which holds that costs come down by 20 percent with every doubling of installed capacity. Rates of installation have varied in the last decade, of course, both year-to-year and world region to world region. What is more, the very idea of a photovoltic Moore's law is a bit slippery—and has tripped me up at least once. But if one postulates conservatively that the installed PV base has doubled roughly every two and a half years in the last decade, then average photovoltaic costs should have come down by close to 60 percent since 1998, not 30 percent.

Generally speaking, grid parity—the point where photovoltaic electricity could compete without subsidies with electricity generated from coal, natural gas, wind, or nuclear—is put at $1/W. That may be a somewhat too demanding standard, considering that photovoltaics work best on rooftops or integrated into construction material, so that electricity is consumed at the point of production, eliminating transmission and distribution costs. But even if grid parity were put at $2/W and installation costs declined at a rate of 30 percent per decade from the currently estimated $7.50/W, it would take PV electricity until roughly mid-century to become economically competitive.

Energy planners with the European Union expect photovoltaic grid parity to be reached around 2015 in Europe's southern-most countries such as Spain and Portugal—at least when PV materials are used in solar concentrating systems. But is there any basis for expecting conventional PV to become competitive that soon?

There's not. Not only are photovoltaics manufacturing costs not in the ballpark right now, they're so far from the ballpark, there's no way of knowing whether they'll ever be in the ballpark.

Having said that, let me introduce a major qualification. Installation costs are not the best way of evaluating the cost-effectiveness of PV or any other electricity generating system. The generally accepted and standard measure of generating costs is the levelized busbar cost—that is, the cost of electricity at the point where it is fed into the grid, taking all cost factors into account (investment, financing, operation, maintenance, and so on). Ideally, to evaluate claims made about grid parity or a PV Moore's law, we would want to measure performance in terms of levelized costs and in the same units we all see on our monthly utility bills, namely cents per kilowatt-hours.

As it happens, however, there are at least two insurmountable obstacles to our actually doing that. One is that photovoltaic electricity is too new and its cost elements are changing too fast for anybody to make reliable estimates of its average levelized costs over time. Just as importantly, operators of PV plants are often very cagey about how much it is costing them to run the installations (a problem I ran into earlier this year, when I tried to assess the the biggest new little plant in the East, on the Pennsylvania-New Jersey border).

That leaves us for better or worse with estimated installed costs. The good thing about using them as a metric is that the size and cost of any given PV plant is generally a matter of public record. So there are a lot of trade groups and energy monitoring organizations that add up the wattage and costs every year, on a global basis. The bad thing is that it would be a full-time job to figure out whose estimates are most reliable. Frankly, I tend to dip around somewhat randomly, following my instincts.

For example, Daniel Yergin's Cambridge Energy Research Associates estimated aggregate world PV installation costs at about $7/W in 2004, wind at a bit under $1/W. According to Marketbuzz/Solarbuzz, average world PV installation costs came to about $6.2/W in 2008, four years later. That's an improvement of 11.5 percent in four years, much too slow a rate of improvement to give us grid parity any time in the foreseeable future.